Well everyone it was a great and extremely hot summer, and unfortunately it’s coming to an end. Your band has played at a music fest or two, you’ve sold some art at a few craft fairs or your film premiered at a film festival, all and all it has been a very busy and very productive summer.Now that the fun and games are over its time to get back to business, so you can get back to the fun and games. This is an ideal time of the year for creative individuals and businesses to take a good look at their financial standings and plan for the rest of the year. With half a year on the books businesses can evaluate where they stand so far this year, make projections for the rest of the year and prepare for tax season.
The first order of business in this midyear evaluation is to get organized. Take a look at all of the income that was received this year so far, then gather and categorize all of the business expenses. Once this is done enter all of this information into a spreadsheet or into whatever accounting software you are currently using. If you don’t know how to categorize your business expenses, don’t worry, luckily for you I have a useful spreadsheet on the Resource page of Limelight Accounting. Most small businesses and entrepreneurs typically wait until the end of the year to do this, but it’s more beneficial to clean and organize on a periodic basis. When the end of the year comes, you will be thanking yourself for getting this done ahead of time. This actually might be the one New Year’s Resolution you follow thru on.
Now that the organizing is done you should have a much cleaner desk and are now ready to move on to the next phase, analyzing and projecting. This can be done one of two ways, either enlist the assistance of an accountant (*ahem*) or the DIY method. If you choose to go the DIY way, don’t worry it’s not as bad as you may think. The first and most important aspect in this phase is to determine if the business is making a profit or taking a loss. If the business is profitable, that’s great; at this point you may want to make projections to reduce the tax liability by paying off lingering expenses, deferring revenues to next year and/or increasing your philanthropic efforts. If the business is operating at a loss, it means that it’s time to start ramping up efforts in acquiring more income. This may be in the form of finding alternate revenue streams by offering a wider variety of services and/or products to your customers, client and fans. So when you finish composing that song for the album, begin composing that jingle for an upcoming commercial campaign.
Alright we’re almost done. It’s now time to think about getting prepared for the upcoming tax season. Now that you’ve organized and made projections for the rest of the year, this part should be easy. In the organizing process the expense receipts were collected and categorized, which now means you have a lot less receipts to go through at the end of the year. As I said earlier, you will be thanking yourself for this and the person that will be doing the businesses taxes will love you for it. During the analyzing and projecting phase it may have been determined that the business will be working at a profit by the end of the year. If this is the case, it is time to start thinking about how much needs to be set aside in order to cover the businesses tax liability. There is really no magic percentage to determine the tax liability as there are too many variables to determine a proper percentage. If this is the business’s first year, a good rule of thumb is to set aside 10–15% of gross income, no matter what the business structure is. If this isn’t the business’s first year you should already have a good idea of how much to set aside based on the previous year. If the business is on pace to make or lose revenue based on previous year’s numbers adjust the percentage up or down accordingly.
Well this is pretty much it. Now that you have gotten a handle on your finances and have a basic plan on what your business will be doing for the rest of the year, you can get back to what you love the most. Working through these processes periodically will help you stay on top of your finances and taxes so you can work creating your next masterpiece no matter if it’s in Art, Music or Film.
Barry Cooper II is an accountant who has worked with artists and independent business owners for five years in Chicago, Nashville, and Los Angeles. He graduated from Robert Morris University with a bachelor’s degree in Accounting and is an accomplished musician and producer. His firm, Limelight Accounting, is dedicated to working with artists and creative professionals of all calibers.